Bond

A bond is a loan an investor makes to a government or a company. The borrower, called the issuer, promises to pay the money back on a set date and to make interest payments along the way. Buying a bond makes an investor a creditor, not an owner, which is the key difference from buying a stock.

The interest rate the issuer pays is called the coupon, and the date the loan is repaid in full is the maturity date. Bond prices move in the opposite direction from interest rates: when rates rise, existing bonds paying a lower fixed coupon become less attractive, so their price falls, and vice versa.

Bonds are generally considered lower risk than stocks because bondholders get paid before shareholders if a company runs into trouble, and because the payments are contractually fixed rather than dependent on how the business performs. That lower risk usually comes with a lower expected return over time.